Briefly Explain the Implied Assumption When Risk-Neutral Method Is Used

question 41

Essay

Briefly explain the implied assumption when risk-neutral method is used for valuing real options.

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market, indicating its riskiness compared to the market average.

Systematic Risk

The risk inherent to the entire market or market segment, also known as market risk, which cannot be mitigated through diversification.

Expected Return

An estimate of the various amounts of money that one could potentially gain or lose from an investment.

Beta

A measure of a stock's volatility in relation to the overall market; a measure of systematic risk.